TMI Blog2019 (3) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... cle-4(1)/2017-18 and I.T.A No.10223/DCIT Circle- 4(1)/2017-18 dated 26.06.2018 for the Assessment Years(A.Y.) 2012-13 and 2013-14 respectively. 2. All the grounds of appeal are related to the addition made by the Assessing Officer (AO) u/s 14A of the Income Tax Act, 1961 (hereinafter called as Act ) read with Rule 8D of the Income rules (hereinafter called as Rules ) for an amount of ₹ 2,70,89,092/- and ₹ 2,70,03,495/- for the A.Y. 2012-13 and 2013-14 respectively In the instant case, the assessee filed the return of income admitting total loss of ₹ 4,46,32,496/- for the A.Y.2012-13 and ₹ 3,78,51,394/- for the A.Y. 2013-14. The assessment was completed u/s 143(3) on total loss of ₹ 1,62,58,913 for the A.Y.2012- 13 and ₹ 1,05,85,358/- for the A.Y.2013-14. During the assessment proceedings, the AO made the following additions to the income / loss returned as under : A.Y.2012-13 (i) Disallowance of expenditure u/s 40(a)(ia) Rs.1,23,500 (ii) Non confirmation from creditor Rs.39,155 (iii) Expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Company Ltd. reported in 250 Taxman 0174 considered the Board Circular and held that the Circular cannot override the express provisions of section 14A r.w.Rule 8D of I.T.Rules. After considering various decisions, Hon ble High Court of Delhi held that no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee, in the relevant assessment years. On identical facts, this Tribunal also held in favour of the assessee in the case of Sri P.Venkateswara Rao in I.T.A. No.429/Viz/2018 dated 30.11.2018. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal as under : 4. We have heard both the parties and perused the material placed on record. In the impugned assessment year, the assessee made the investment out of interest free surplus fund available to the assessee and the assessee did not earn the income which is exempt u/s 14A of the Act. The above facts were not disputed by the lower authorities. The AO made the addition placing reliance on the Circular No.5/2014 of the CBDT and the Ld.CIT(A) confirmed the addition. Hon ble High Court of Delhi in the case of Pr.Commissioner of Income Tax Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Income Tax Act . 15. What is taxable under Section 5 of the Act is the total income which is neither notional nor speculative. It has to be 'real income'. The subsequent amendment to Section 14A does not particularly clarify whether the disallowance of the expenditure would apply even where no exempt income is earned in the AY in question from investments made, not in that AY, but earlier AYs. 16. Rule 8D (1) of the Rules is helpful, to some extent, in understanding the above issue. It reads as under: 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 17. The words 'in relation to income which does not form part of the total income under the Act for such previous year in the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D is by way of a determination Involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe thus would be carrying the artifice too far. 21. The decisions in CIT v. M/s Lakhani Marketing Inc, 2014 SCC Online P H 20357, CIT v. Winsome Textile Industries Limited [2009] 319 ITR 204 (P H), CIT v. Shivam Motors (P) Ltd (2014) 272 CTR (All) 277 have all taken a similar view. The decision in Taikisha Engineering India Pvt. Ltd. (supra) does not specifically deal with this issue. 22. It was suggested by Mr. Hussain that, in the context of Section 57(iii), the Supreme Court in Commissioner Of Income Tax, West v, Rajendra Prasad Moody [1978] 115 ITR 519 (SC) explained that deduction is allowable even where income was not actually earned in the AY in question. This aspect of the matter was dealt with by this Court in M/s Cheminvest Ltd. (supra) where it reversed the decision of the Special Bench of the ITAT by observing as under: 20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Pras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Housing Development Ltd. (supra) and Relaxo Footwear Ltd. V. Addl. CIT (supra), to the extent that they are inconsistent with what has been held hereinbefore do not merit acceptance. Further, the mere fact that in the audit report for the AY in question, the auditors may have suggested that there should be a disallowance cannot be determinative of the legal position. That would not preclude the Assessee from taking a stand that no disallowance under Section 14 A of the Act was called for in the AY in question because no exempt income was earned. 24. For all of the aforementioned reasons, this Court is of the view that the CBDT Circular dated 11th May 2014 cannot override the expressed provisions of Section 14A read with Rule 8D. 4.1. This Tribunal also in the case of SLC Projects Pvt. Ltd. vs. ACIT, CC-2 (supra) for the A.Y. 2013-14 held that no disallowance is called for in the absence of exempt income. We extract relevant part of the order of this Tribunal from para No.9 to 10 which reads as under : 9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Ld. A.R. argued that no expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of dividend income earned by the assessee. The Ld.AR submitted paper book enclosing the copy of statement of computation, return of income, balance sheet and profit and loss account. It is seen from the profit and loss account and the statement of computation of income that the assessee has not derived any dividend income. When the assessee has no exempt income, the question of disallowance u/s14A r.w.Rule 8D is not called for. The same view is expressed by the decision of Hon ble Madras High Court in Redington (India) Ltd. Vs. Addl.CIT, 77 taxman.com 257, Hon ble Delhi High Court in Chem Investments Vs. CIT, 61 taxman.com 118 and the Hon ble Gujarat High Court in Principal CIT Vs. Sintex Industries Ltd., 82 taxman.com 171 held that no disallowance is called for when assessee makes small investment from the surplus funds. There was no dividend income earned by the assessee and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld.CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. 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